Determining the True Inflation-Adjusted Gold Price

A new high gold price always revives talk of its inflation-adjusted price. The most common inflation-adjusted measure is the CPI, using the 1980 high price of $850. The problem with using the CPI is that the use of hedonics, substitution, and the removal of food and energy eliminate most of the price increases. In addition, since inflation is a monetary phenomenon, any inflation adjustment must be against changes in the money supply. The only true way to inflation-adjust the gold price is against the currency supply.The Gold Standard Act of 1900 defined the dollar as a weight of gold and set the dollar’s value at 1/20.67 ounce of gold, later revalued to 1/35. In other words, for every one ounce of goldComplete Story »

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The price of gold fell last month to the $1,200 level. The lemming sentiment in capital markets is uniformly bearish, yet every price drop brings forth hungry buyers for physical gold from all over the world. Even hard-bitten gold bugs in the West are shaken and frightened to call a bottom, yet it is these conditions that accompany a selling climax. This article concludes there is a high possibility that gold will go sharply higher from here.
There are three loose ends to consider: valuation, economics and market fundamentals.

Inflation adjusted silver prices are more difficult to calculate due to silver’s volatility. However, knowing the true inflation adjusted gold price ($3604.22) and estimating the gold/silver ratio allows a reasonable estimate. The gold/silver ratio fluctuates wildly from a high of 137 to a low of 15.

To recast Mark Twain’s famous quote, the death of the dollar has been greatly exaggerated.
Despite all the hand-wringing over “money printing,” the old greenback surged in Q3. What it means for you and your portfolio is the subject of today’s alert.
First, let me frame the rally, which has been historic.

Submitted by Dan Popescu via Acting-Man.com,
The Inflation Illusion
We hear more and more talk about the possibility of imposing negative interest rates in the US. In a recent article former Fed chairman Ben Bernanke asks what tools the Fed has left to support the economy and inter alia discusses the use of negative rates.

With gold a stone’s throw away from $2,000 and already up 27% on the year, the objective investor might begin wondering how much higher both it and silver can climb. After all, gold is nearing its inflation-adjusted 1980 high – and that peak was a spike that lasted only one day. So, how much return can we realistically expect in each metal at this point? And is one a better buy than the other? There are dozens of ways to calculate price projections, but I’m going to use data based strictly on past price behavior from the 1970s bull market.

The bullish outlook for gold prices was covered by Dow Jones Marketwatch yesterday. “Gold prices may be ready to make a significant move higher as holdings of the precious metal in the SPDR Gold Trust exchange-traded fund climb to their highest level in more than two months.”

By Investment Directions: Today's bullish/bearish gold sentiments are mismatched. Bulls list gold's preservation and protection strengths, and bears point to its high price. To improve the debate, we need to get away from current events and examine history.Here are three periods and methodologies that provide the perspectives needed.
The market-based period (1975 to current), using inflation-adjusted gold price